Is Procurement Technology REALLY That Important? Ian Burdon Asks the Question

We wrote here about the Jason Busch article commenting on the likely Coupa flotation this year. Jason's article drew a Twitter comment from Ian Burdon that prompted us to ask him if he would expand on it - which he has now done. Ian is Director of Strategic Business Development at eProcurement provider Elcom Systems Ltd., although he is writing here in a purely personal capacity.  We're grateful to him for his thought-provoking piece.

The great conceit of procurement technology vendors is the persistent confusion of tail and dog with respect to wagging. Technology is generally not at the forefront of procurement professionals’ thoughts. Instead they worry about, for example, security of supply chain, compliance in the supply chain, achieving best value, and delivering sustainability (in several senses of the word). They probably keep an eye on vendors in the category portfolios they manage and, with a bit of luck, will work with operations and finance colleagues to plan future needs and procurement strategies.

In the UK, concerns now also include the potential consequences of Brexit for the supply chain, including hedging against the impact of exchange rates and import costs on tier 2 or 3 suppliers, and the probability of a recession in the next two years. In the public sector they have to think about political pressures, legislative compliance, local economic impacts of public expenditure, development of SMEs, and constraints on procurement influence in organisations forced into significant cuts.

In some countries there are very basic concerns about competition, collusion and corruption.

It is an obvious truism that technology plays into some of the above, but it is hard to see how an IPO of a vendor materially affects any of it.

Further, I am sceptical of Jason’s assertion that “investment drives innovation”. My experience is that, in the long run, the needs of users drive innovation. When NHS Greater Glasgow and Clyde gave sign-on rights to our software to parents caring for sick children at home, routing the orders through hospital budgets and approval channels, the impetus, and innovative thinking, came from nurses and clinical staff, not from us.

My view remains unchanged from when I first got involved in April 2000: there is far too much concentration on technology, and not enough on procurement (just as in e-commerce there is too much about “e” and not enough about commerce).

Jason touches on the viability of ‘pure-play procurement vendors’. The procurement technology market is in flux, but seems to me to be generally conservative rather than innovative, because procurement, purchasing and corporate finance are conservative disciplines. A nineteenth century purchasing clerk would quickly feel right at home in most modern offices because the process has barely changed, and technology mirrors that conservatism.

One symptom of conservatism is ERP inertia. ERPs don’t change much because they are a safe sell to Finance Directors who want a decent ledger system but are persuaded to buy the rest as well. I tend to think this provides more opportunity for companies like ours, and others, whose P2P product suites can both be accessed stand-alone or directly from within the ERP system depending on the customer requirement. This isn’t normally driven by technology, or by the Procurement Director, but by how the FD wants her processes to be organised.

My overall reading is that opportunities for pure-play procurement approaches will attenuate in favour of product sets meeting a broader range of customer requirements, including supplier requirements (procurement systems are still sold and evaluated principally on buyer benefits, which is only half the story). Most vendors are now also involved in some form of supply chain finance initiative, for example.

Finally, where investment is happening in procurement technology, it appears to be based at least as much on expectations raised by marketing exuberance and top-line revenue as on sober consideration of sustainable bottom-line profits. We grumpy old men who remember the dot-com boom of the early 2000s suspect that approach will end in tears.

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